Will Microsoft layoffs come next week?

Rumours of layoffs at Microsoft continue to swirl ahead of the company's quarterly earnings report slated for 22 Jan.

John Fontana, Network World
January 16, 2009

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Rumours of layoffs at Microsoft continue to swirl ahead of the company's quarterly earnings report slated for 22 Jan.

Over the past few weeks, reports speculated that the cuts would come Thursday, 15 Jan. But The Wall Street Journal Thursday reported that layoffs could come next week because Microsoft is scheduled to report its earnings on 22 Jan.

Wall Street analysts are expecting revenue growth of about 5%, the Journal reported. That percentage tracks on the low end of guidance Microsoft issued in October for fiscal 2009 revenue growth, which it predicted will be in the "single digits to low double digits." Microsoft's financial year ends June 30, 2009.

It is likely that Microsoft would make any layoff announcement during or before the earnings call so financial analysts can adjust their forecasts.

Chris Liddell, Microsoft's chief financial officer, said during the October earnings report the company was adjusting downward its guidance for the second fiscal quarter of 2009. But he qualified his statement, saying strong cash flow, high unearned revenue and plentiful cash on hand would "allow us to weather any economic recession in relatively better terms than most."

In October, Microsoft reported it had US$23.6 billion in cash and short-term investments. The company also showed $4.2 billion in unearned revenue for its fiscal 2009 first quarter, mostly gained as a portion of three-year support and maintenance contracts with corporate customers.

Expectations are that if Microsoft does lay off staff, the cuts will be far less than the 15,000 number that has been floated by some news outlets. With 94,286 employees worldwide, a cut that size would represent nearly 16% of Microsoft's workforce. Since its inception in 1975, Microsoft has not had a single layoff even close to that number.

Sources have told Network World that Microsoft has been thinning the ranks of contract employees and nipping and tucking in various budget areas, including new hires, just like many other companies in the tight economy.

Google, for instance, has been thinning its ranks of external contractors and vendors. In addition, Google said Thursday it planned to lay off 100 recruiters and will close offices in Texas, Norway and Sweden.

Microsoft officials continue to have no comment on the layoff rumours, which have been swirling as far back as mid-December. At that time, Brad Reback, an analyst with Oppenheimer & Co., said in a report that Microsoft layoffs would be "well-received" by Wall Street. He also said it would show that profit is more important than growing revenue, a well-known trait Microsoft has developed.